Wednesday, 2 November 2016

Is austerity to blame for Brexit?

“Strip away all the electoral politics at the moment in the U.S.,
the U.K., Italy, Spain and elsewhere, and that's the underlying
political economy. It's a creditor/debtor stand-off where the
creditors have the whip hand. And yet, the more they crack the whip, the more the backlash against austerity, in all its forms, gains strength.”

Or in other words, it is all about austerity. That is a big claim,
particularly when applied to the current US elections, but I want to
examine it in the specific case of the EU referendum. In short, did
austerity cause Brexit? Given how opposition to austerity has been
such an important part of this blog, in some ways it is an attractive
line for me to take, but I do try and base what I say on evidence
rather than on what is convenient.

In the past I’ve argued that there is a massive problem with this
idea, and the related idea that Brexit was a more general protest
vote against elites. The obvious time to protest against austerity
was the 2015 General Election. Yet rather than protest against the
party that introduced austerity and promised much more of it, the
British people gave the Conservatives a surprise victory.

It is nevertheless possible to argue that austerity caused Brexit in
more subtle ways. I’ve also argued in the past that some of the
concern over immigration is actually the result over concern about
reduced public services and low wages, and a belief that the issues
are linked. To the extent that reduced access to public services and
to some extent low wages is actually the result of austerity, and if
much of the public believe that austerity is nevertheless necessary,
then what should be a protest over austerity could get displaced as a
protest about immigration.

If your response to this idea is to say that concern over immigration
is also a result of racism and xenophobia, I would agree, but argue
that this is beside the point. When talking about the Brexit vote, we
should be concerned about what you might call the swing voters, a
point that Chris Dillow also makes.
Remember
that a large number of those voting Leave would not have been
prepared to pay anything to reduce immigration: they do not sound
like voters whose overriding concern is to see less foreigners on
their streets. It is the Brexit voters who thought Brexit would make
them better off that we should be concerned about.

So there is a possible mechanism by which austerity could have caused
Brexit. That mechanism is part of a more general phenomenon: when
things get tough, people become much more receptive to potential
unfairness. It is what helps drive a belief that welfare goes to
scroungers, a belief that some Conservative ministers seem happy to
encourage.

Is there any evidence to support the idea that the mechanism I’ve
outlined was important? Here is polling on the EU referendum over a
long time period (source).

If there is a general recession effect here (i.e. applying to every
UK recession) it is masked by other factors. However after the global
financial crisis and austerity we did see a big shift against the EU,
although that could also be explained by the Eurozone crisis. The
drop in support for leaving before the 2015 election seems to go
against the austerity caused Brexit hypothesis, but that was also a
time the government and much of the media was claiming that the UK
economy was recovering strongly. The true state of the NHS only
became apparent to most people after the election, when support for
Leaving revived. So I do not think this historical evidence is
conclusive either way.

There is some econometric evidence for a link between the extent of
public service cutbacks and the proportion of people voting Leave
(for a summary, see this
VoxEU article). But as the article itself notes, the measure of
austerity used could simply be acting as a proxy for more long term
deprivation, which is a widely acknowledged influence on Brexit.

In my view more compelling evidence for an impact of austerity on the
Leave vote comes from the little polling evidence we have on why
people think high levels of EU immigration is a problem. Here is the
result of a poll on this that I have reproduced before,
which speaks for itself.

As I have argued here,
the current squeeze on the NHS is unprecedented. The share of NHS
spending in GDP has a natural tendency to rise over time, for reasons
that are well understood. Yet not only did few in the media contest
the ‘common sense’ idea that austerity was necessary, but also
voters hear time and again that NHS spending is being protected. As
they see services deteriorate, it is not surprising that they
conclude that there is just too much demand. I doubt very much that
it is coincidence that the Leave campaign’s bus
had the £350 million a week going to the NHS.

So there is evidence that links austerity to the Brexit vote,
particularly if we remember we are not talking about a core vote that
would have voted Leave anyway (because of xenophobia, for example),
but the swing voters who at other times and circumstances might have
voted the other way. But what about arguments that the Leave vote
reflected a reaction to deprivation caused by globalisation, or that
it was the result of the malign influence of the tabloid press? (I’ve
made both arguments in the past.)

There is some complementarity here. As I noted at the beginning, the
media is important in transforming concern about austerity from the
politicians that impose it into concern about immigration. More
importantly, there is no need to find the cause of Brexit. It
seems quite possible to believe that the vote would have gone the
other way if we had not had austerity, or if we had a tabloid press
that was not just a cheerleader for Leave and a broadcast media
indifferent to expertise, or if the impact of globalisation had been
offset in various ways. With the vote so close, it is legitimate to
argue that all three on their own might have been responsible for
Brexit, or equivalently that the Brexit result was a consequence of a
perfect storm of bad policies and institutions.

Another factor seems to have been the City support for staying in, and the bizarre but popular belief that voting Tory in 2015 then voting Leave in 2016 was salving (or revenging) the problems of 2008.

We can see that of the 2015 Tory voters 3/5 went Leave, as well as many who had not voted in preceding elections, alongside 19/20 of UKIP voters.

Clearly the warped incentive for Cameron was to put Party before national interest by calling the referendum, and that has for good or ill the result has locked the Tory Party into being the Leave Party.

The Sun in the late 1990s called Blair 'the most dangerous man in the world' for thinking about joining the Euro, but to the Sun and other rightist outlets this was always a political issue brought about by their medium-term break with the Tory Party over the ERM.

The right-wing media, seemingly always friends of financiers, ditched them in 2016 like they ditched the Tories in 1992-3.

But, of course, they'll be back in open alliance when the time becomes appropriate, because they'll never admit its Keynesian sticky prices and wages that meant the Euro is a botch because, as Keynes said of the 1931 May Committee which recommended cuts of £96.5 million per year, of which £66 million would come from unemployment insurance alone, it was a ‘gross perversion of social justice’ that the jobless be sacrificed to the rentier.

It’s striking to see you rail against austerity in your public writing, and yet in your academic work take it as an unquestioned premise that elected governments suffer from “deficit bias":

http://www.economics.ox.ac.uk/materials/papers/13342/paper704.pdf

Apparently elected governments are inherently biased toward stimulus and have to be institutionally restrained from overexpansionary policy. This idea — back up with some arguments about the “time-inconsistency” of policy that don’t really make sense, has caused huge pain and is total BS:

As an American looking across the pond it appears that the Brexit vote was a random event. My argument is based on the fact that there were and are strong regional differences in the desire to remain in the EU. Scotland and Ireland and the city of London were overwhelmingly in favor or remaining. That meant higher than actual turnout in those regions could have had a large enough effect on the final vote tally make a difference to the outcome. For example, poor weather in Scotland could have discouraged potential Remain voters who stayed home. And the final vote was quite close so such imbalances in turnout could easily affect the outcome. In fact, there were efforts post Brexit to have a revote that required more than 50% in favor or that required higher turnout to become valid. That's why in some US states a 60% majority is required to pass state constitutional amendments.

SW-L’s suggestion that concern about immigration stems from xenophobia is insulting and purile. There are a whole string of reasons for wanting less immigration than simple hatred of foreigners (and some of those reasons are valid and some not). Moreover, if the anti-immigration lot hate or fear foreigners, can SW-L explain why UKIP members go abroad for their holidays like everyone else and mix with foreigners?

Equally purile is the suggestion that anti immigration sentiment stems from racism. Racism is defined in my Oxford dictionary as the belief that some races are better than others and/or hatred based on that belief. Given that psychologists have found some races have higher IQs than others, I fail to see what’s wrong with racism in the latter first sense. Moreover, the idea that opposition to immigration must stem from racism in the latter first sense is as logical as claiming the fact that there’s salt in the sea proves the Moon is made of cheeze.

And finally, as usual, SW-L keeps very quiet about the contribution his own profession has made to austerity: the IMF and OECD economists who spent most of the crisis advocating consolidation/austerity. And then there’s the collection of dim-wits at Harvard university (e.g. Rogoff and Reinhart) who have spent the last 5 years at least pushing the latter IMF/OECD line.

Hmmm.More likely that the SNP caused Brexit with their independence talk. Scotland is clearly not a proper country that should be independent from England, but GB independent from EU...? That seems more reasonable.

The reason the Tories won in 2015 was the almost identical pro-Austerity stance of the Labour Party. The real clue to the strength of support for Brexit is the size of the turnout in the 2015 general election, 2016 (referendum)where the biggest mandate ever in the history of Britain's universal suffrage supported leave and 2017 general election Corbyn factor. Indeed I view Brexit and Corbynism as synbiotic phenomena previously unseen in British politics, both are forms of mobilisation.

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